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How To Create a Cash Flow Forecast for Your Business

Author Renee YangRenee Yang

5 min read
Money Talk

Creating a cash flow forecast needn’t be a headache for you and your business. This crucial practice can be achieved following our simple steps and advice.

How To Create a Cash Flow Forecast for Your Business

Whether you are starting a new business or have an existing one, you might realise that apart from having a viable business plan, having a clear overview of your cash flow is crucial. As a business owner, it will be a considerable risk if you are unaware of the cash movement in your company.

To avoid that, you will need to create a cash flow forecast. For a first-time business owner, this term may seem intimidating. But fret not; in this article we make everything straightforward, here’s what you need to know.

What Is a Cash Flow Forecast?

Cash flow forecasting helps businesses to estimate the incoming and outgoing cash in their companies over a prescribed time frame. It shows your projected cash based on income and expenditure. If you are making decisions about future activities such as funding, capital expenditure and investments, a cash flow forecast will help you understand your company’s financial health.

Why Creating a Cash Flow Forecast Is Important?

The purpose of a cash flow forecast is to understand the amount of cash you will have for your business at the end of each month. However, that doesn’t mean that cash is coming in for that period. That is why creating a cash flow forecast is important for any business. It gives you an idea of your cash movement for the month, it also helps you to prepare ahead of time if you run out of cash.

Colin receives his goods from supplier A on the first day of each month. There is a credit of 30 days for him to pay his supplier. With the goods he receives, Colin will sell to his customers. Since his business is a B2B model, his customers get 30 days of credit to make payments to him. In such circumstances, Colin may not receive the payment from his customers immediately. Within these 60 days, he will not obtain or make any payment. So, there is a cash flow gap here.

Looking at and checking your cash flow movement enables you to make an informed decision about diversifying your products or changing the time frame of your payment.

When Is the Best Time To Create a Cash Flow Forecast?

Want to improve your cash flow management?

Here's nine tips to get you started.

Well, the sooner, the better.

You don’t have to start creating a cash flow forecast the minute you start your business. But once you have sourced your suppliers, made sales and have everything running for your business, you may want to consider creating a cash flow forecast. By planning ahead, you get an idea of the direction your business is going in. Ideally, it will be good to create a year-long plan.

Essential Templates for Your First Year

5 Simple Steps To Creating Cash Flow Forecasts

  1. Work out your sales

To begin your cash flow forecast, you must first establish the sales your business will make every month. It doesn’t have to be an exact figure, more a projected figure of how much you will make for each month. One way to understand how to work out your sales is to look at your sales trends over the years. If you are doing this for the first time, you can think about the number of sales you will achieve. But do keep in mind that when you project, you have to include VAT.

  1. List all your income

Apart from the sales flowing into your business, you will also receive other sources of income, such as business loans, grants or funding from the government, sponsorships for projects, and investment and sales from company assets. These are considered your list of income. Include them in your income column and add them up.

  1. List down your expenditure

Just as there is an income, you will also have expenses. So what is considered expenditure? Things like wages, rental, business expenses and paying suppliers – anything that flows out of your business is considered expenses. For this, you will need to record them as your expenditure in your forecast.

  1. Putting your cash flow together

After you have listed down all your income and expenditure in their respective columns, you will need to work out your cash flow. Depending on the nature of your business, you may take either a weekly or monthly column, take your income and subtract it from your expenditure. From this calculation, you should be able to get a figure that is either positive or negative. If you get a positive figure, it means you have more cash coming in. However, getting a negative figure shows that you are spending more money on your business than what you’ll receive.

Here’s a template and example you can use for your cash flow forecast:

Income Period 1 Period 2
Sales £24,500 £15,800
Business loans £1,300 0
Grant 0 £500
Sales of Assets £500 0
Total £26,300 £16,300
Advertising & Marketing £6,500 £5,500
Rent £1,000 £1,000
Payroll £3,200 £3,200
Insurance £270 £270
Office expenses £670 £800
Purchase of equipment 0 £760
Total £11,640 £11,530
Net Cash Flow £14,660 £4,770
Closing balance £14,660 £19,430

Through this cash flow forecast, you can ascertain which month or week has the cash flow gap, extract your profit and loss statement. Working out your cash flow also helps you organise your financial commitments, such as payroll, paying rent, etc.

  1. Getting the right tools for your forecast

Now that you know what goes inside the cash flow forecast, it’s time to create one. One of the easiest ways to do it is to use Microsoft Excel. It works perfectly well if you just establish your business and record incoming sales and outgoing expenses monthly. But once your business starts growing and you have more complex income or expenditure, you might consider using an accounting system to help you keep track of things.

Osome Accounting streamlines your business finances by capturing your company’s financial information in one place. Your sales data, bank transactions and invoicing system are all on the Osome app so that you can track your financial performance in real-time. Monitor your profit and loss statement and late invoice payments in multiple currencies, to predict your monthly performance and create accurate cash flow forecasts for your business. And Osome’s expert accountants are always on hand to explain your cash flow forecast and reports in more detail.

Wrapping It Up

Ultimately, creating a cash flow forecast helps you understand how much is going into your business and what flows out of it. Then working out the difference between the two. It would be good to project this forecast monthly so that you really get a sense of the direction your company is going in and how you can plan for your business in the future.


Let us cover your cash flow forecast, while you focus on your business. Osome helps entrepreneurs do business better. Smart software + expert accountants = financial admin, done.

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